The 2020 NPL Action Plan includes:

• Encouraging the development of NPL Secondary Markets
• The potential for Asset Management Companies (aka ‘bad banks’)
• Support for the use of APS schemes in conjunction with Asset Management Companies
• Improvements to Insolvency, Recovery and Restructuring regimes

The plan to pre-emptively address the impact of NPLs is timely and important given the impact of the current Covid driven economic downturn on legacy NPL portfolios and collateral security, as well as the likelihood of new NPL flow emerging.

Practical steps to facilitate banks resolving their NPL holdings will be widely welcomed, and the continued analysis of, and where appropriate, removal of impediments to NPL resolution will be beneficial to the banking system and ultimately the wider economy.

We note that the 2017 Action Plan resulted in an increase in NPL disposals by European banks, largely to avoid a more onerous regulatory treatment of holding NPLs. The 2020 Action Plan in contrast, focuses primarily on measures that, should they be effective, would make NPL disposals more attractive (or perhaps less costly) to execute.

Context and Background

  • The EU has seen reductions in NPL volumes over the past 6 years, with the rate of reduction slowing down significantly in 2020, with several countries still having elevated NPL levels
  • NPLs volumes are likely to grow substantially due to the economic impact of Covid and related government policies (notwithstanding the various forms of government support and/or moratoria)
  • It is important to take measures to address NPLs to prevent them from building up on banks’ balance sheets
  • The 2017 Action Plan and subsequent European Commission package broadly included the following five elements
  1. Blueprint for Asset Management Companies (aka “bad banks”);
  2. Measures aimed at fostering the development of Secondary Markets in NPLS;
  3. Measures to foster transparency for NPLs across Europe;
  4. Enhancements to the regulatory and prudential treatment of NPLs within the banking system; and
  5. Measures regarding improvements to the treatment of insolvency, loan enforcement, creditor protection and recovery.


Substantial progress has been made on these points including:

  • European Commission Working Document “AMC Blueprint” (SWD(2018) 72 final)
  • Regulatory guidelines and legislation regarding the characterisation of defaulted loans and their treatment including:
    • EBA Guidelines on Management of non-performing and forborne exposures (EBA/GL/2018/06)
    • Regulation regarding minimum loss coverage for non-performing loans (EU 2019/630)
    • ECB Supervisory Expectations for NPL Provisioning (2018, 2019)
  • A proposal for a “Directive on Credit Servicers, Credit Purchasers and Recovery of Collateral” (European Commission 2018/0063/COD) which has not progressed to enactment (but remains in discussions within the Council of the European Union)
  • The “Directive on Preventative Restructuring Frameworks” was enacted in 2019 (EU 2019/1023)
  • European Commission Working Document “European Platforms for Non-Performing Loans” (SWD(2018) 472 final)
  • The EBA “Report on Loan Enforcement Benchmarking” (EBA/REP/2020/29)


Very substantial progress has been made on the regulation of banks regarding the identification of NPLs, their disclosure and the appropriate prudential treatment by means of regulations and guidelines.

The publication of blueprints and reports has provided a sound basis for understanding, however, the analysis of the relevant issues surrounding Asset Management Companies and loan enforcement regimes has not yet resulted in any legislative consequences.

Since 2017 a wider secondary market in terms of sales of NPLs both in the form of loan portfolios and securitisation transactions has emerged, although the degree of transparency and liquidity may not have yet achieved the levels sought by the original action plan.

In terms of directives, it is noteworthy that to be effective, not only do these recommendations need to be enacted in the European Parliament, but also subsequently transposed into national law in a suitable manner by national governments and parliaments.  Thus there can be a substantial lead-time until they are practically applicable.

Elements of the 2020 Action Plan

  • Revival of the “Directive on Credit Servicers, Credit Purchasers and Recovery of Collateral” (see above) to provide greater debtor protection and certainty, noting that the Council of the European Union has reached a “negotiating mandate” but that engagement with the European Parliament has not yet started.


  • Data quality improvement, development of data infrastructure, and data hub and/or repository, including the leveraging of existing data sources, all with the aim of increasing transparency and therefore market liquidity/efficiency.


  • Legislation to make NPL securitisation more efficient and effective, largely reflective of the recommendations of the EBA Opinion regarding NPL Securitisation (EBA-OP-2019-13) has recently had its text agreed in trialogue and so should soon progress towards enactment (2020/0156, 2020/0151).


  • ‘Best Execution’ Sales Process guidance to be developed by 2021Q3 to encourage less experienced vendors.

Of these, the first two points reflect renewed interest in points raised in the original 2017 Action Plan which have had a limited degree of implementation, and may be perceived as not having achieved their potential in terms of benefits.

 The second point covers much of the subject matter from the Working Document “European Platforms for Non-Performing Loans” mentioned above.

 Are regards the directive, it remains to be seen whether there is renewed impetus for agreement of the relevant legislation, both at the EU and national level, given the potential for political challenges in striking a widely acceptable balance between the interests of creditors and borrowers.

 The recognition of the importance of securitisation as a tool for NPL management and disposal, and the need for greater clarity and improvements in regulatory coherence, will be widely welcomed and will assist in cementing sound approaches to NPL securitisation, especially in the context of so-called Asset Protections Schemes (APS, see below).

  • Acknowledgement that Asset Management Companies (AMCs) can be very effective in certain specific circumstances, benefitting from economies of scale, centralisation of expertise and coordination.


  • AMCs can be established with private or (partially) public funding in line with the “AMC Blueprint” and in compliance with State Aid rules, but in order to be effective AMCs need to have sufficient capital to make a meaningful contribution to NPL volumes, which likely entails significant public funding and a State Aid assessment.


  • Consideration to be given to national AMCs and a cross-border network of AMCs at the EU level enabling exchange of best practises, experience and standardisation


  • Reference is also made to Asset Protection Schemes such as GACS (in Italy) and Hercules (in Greece) which provide public support to NPL securitisation programmes (with approval as not being State Aid) as potentially being complementary to AMCs.


  • Consideration of simplified approach to Real Economic Value (REV) in the context of applicable of State Aid rules for AMCs.

 AMCs have had a mixed perception in terms of successfully resolving NPLs, with widely appreciated costs as well as benefits. It is likely that the inclusion of AMCs as an element of the Action Plan will be appreciated as a valuable option, but there remain practical obstacles to implementation, including operational complexity and State Aid approval, which the “AMC Blueprint” whilst helping with, does not entirely mitigate. However, it is easy to see how some of the more complex cross-border resolution issues could eventually be simplified through a network of cooperating AMCs.

 The recognition of APS schemes as complementary to AMCs, whilst pursing similar goals, and as having been successful in Italy and Greece, is welcome, and potentially may encourage other countries to contemplate similar schemes.

  • Revival of the “Directive on Credit Servicers, Credit Purchasers and Recovery of Collateral” (see above), at least for non-consumer debt.


  • The impact of differences in loan enforcement across jurisdictions and regimes to be considered carefully (see EBA Report above), with possible further developments for convergence of non-bank insolvency frameworks as part of the Capital Markets Union (CMU).


  • Once the “Directive on Preventative Restructuring Frameworks” (see above) is transposed into national law and implemented, it should mitigate the expected increase in NPLs.

At present the treatment of NPLs from the perspective of servicing, selling, acquiring and enforcing to realise collateral is within the remit of national laws which vary by jurisdiction, with some being more creditor friendly and others offering more leniency and/or protection to debtors. Political agreement at the European and national level does not yet appear to have been fully achieved on these points to strike a widely acceptable balance between these two objectives. Even with agreement, there may also be impediments at the national level that would delay effective implementation. It seems likely that until greater uniformity is reached between jurisdictions, as these directives would seek to achieve, there will remain significant heterogeneity regarding NPL performance.

  • The Bank Resolution and Recovery Directive (BRRD) and State Aid framework provides for measures that can be taken in the event that institutions (i.e. banks) are “failing or likely to fail” (FOLTF).


  • In the context of the crisis precipitated by Covid-19, the exceptional possibility of public sector financial support to provide precautionary recapitalisation of a bank without automatically triggering the status of FOLTF, is available for solvent banks.


  • Any such public financial support would nonetheless need to be compliant with the State Aid framework, and be sized based on the basis of a quantitative exercise such as a stress test.

Whilst it is to be hoped that extreme measures as permitted in the context of BRRD are not required, noting how rules should be interpreted to permit intervention by authorities to help ensure financial stability in the event of unsustainable NPL burdens will help reassure markets of the available flexibility.